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BHP aims to push up iron ore capacity by a fifth

A pedestrian walks past the head offices of BHP Billiton in central Melbourne October 16, 2008. REUTERS/Mick Tsikas
A pedestrian walks past the head offices of BHP Billiton in central Melbourne October 16, 2008. REUTERS/Mick Tsikas

By Sonali Paul

PERTH (Reuters) - BHP Billiton expects to expand its iron ore capacity by nearly a fifth just by working its mines, rail lines and port harder as it looks to control costs in a softer iron ore market, the global miner's iron ore chief said on Wednesday.

Uncertainty over iron ore prices due to stuttering demand for the steel making ingredient from China has prompted a rethink of expansion plans by most iron ore miners, including top global iron ore miner Vale .

BHP has slowed its growth plans, like Australia's no.3 iron ore miner Fortescue Metals Group , while their bigger rival Rio Tinto is pressing ahead with an expansion that will give it at least a third more capacity than BHP and more than double Fortescue's capacity.

"Looking forward, things are not as rosy as they were in the past. The imperative to grow as aggressively as we were in the past has diminished slightly," Wilson said at a conference.

Caught out by escalating costs, a sharp slide in iron ore prices and a persistently strong Australian dollar, BHP shelved plans in August to build a $20 billion iron ore harbor at Port Hedland in Western Australia that would have eventually doubled its iron ore capacity to 440 million tonnes.

BHP is focusing instead on milking as much out of its existing inner harbor, rail line and mines, increasing its capacity in smaller steps without huge capital outlays.

The company now expects to reach 260 million tonnes, or 40 million tonnes more than the current target that it will reach with the nearly completed expansion of its inner harbor at Port Hedland and the opening of the Jimblebar mine.

"The aspiration would be, just by squeezing our existing infrastructure with modest capital investments across our business, to be able to achieve around the 260 million tonne mark," Wilson told reporters on the sidelines of the conference.

He gave no timeframe or cost for achieving the higher target after it reaches 220 million tonnes a year in 2014.

Analysts said BHP's and Fortescue's deferral of growth plans reflected more on lower cash flows rather than longer term pessimism about China's growth and demand for iron ore.

"This is more about conserving capital in the current environment than concern over weaker markets," said Fat Prophets mining analyst David Lennox.

BHP's shares closed down just 0.06 percent at 33.730 in Australia. They fell almost 1 percent in London by 1225 GMT compared to a half percent fall for the FTSE 100 index as a whole.

RIVALS DELAYED

Fortescue plans to review in December whether to push ahead with tripling its iron ore capacity, a plan it deferred in September when iron ore prices slid to a three-year low.

The company had expected iron ore prices to hold around $120 a tonne, but when prices slumped to $87 in September it slammed the brakes on plans to lift its annual capacity to 155 million tonnes by digging the Kings mine.

Iron ore prices have since rebounded to around $120 and Fortescue said this has given the company more confidence to try to revive the Kings development.

"We've spent the vast amount of the capital there, so we are very keen to restart that as soon as we possibly can...It's looking very promising," Nev Power, Fortescue's chief executive, told reporters after its annual general meeting on Wednesday.

Still uncertainties over China remain.

Iron ore prices may drop nearly 10 percent over the next three years as China's economic growth shifts to a slower gear, a Reuters poll in late October showed.

Australian mining magnate Gina Rinehart's $10 billion Roy Hill iron ore project is also running behind plan, now expecting to start shipping iron ore by September 2015 if it secures debt financing by mid-2013 as hoped.

"We were planning to put the first ore on ship towards the end of 2014. Now we've revised it to mid-to-September 2015," said Tad Watroba, an executive director at Rinehart's Hancock Prospecting, which owns 70 percent of the project.

The Roy Hill project has run into delays lining up around $7 billion in debt funding, as potential lenders, including export credit agencies in Japan and South Korea, have become extra cautious following the global financial crisis.

The partners hope to secure the funding by mid-2013 so they can begin construction on the mine, rail and port project that aim to produce 55 million tonnes a year. The partners have already spent or committed $2 billion on the project.

Watroba said the project expects to launch the financing process shortly, with draft term sheets approved by the board, and said it hopes lenders will approve the term sheets within three to four months.

Roy Hill is 30 percent owned by a consortium led by South Korean steel giant POSCO <005490.KS>, Japan's Marubeni Corp <8002.T>, South Korea's STX Corp <011810.KS> and Taiwan's China Steel Corp <2002.TW>. (Additional reporting by Rebekah Kebede in PERTH, James Regan in SYDNEY and Manolo Serapio in SINGAPORE; Editing by Ed Davies)

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